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Quiz 5 Inventory

An auditor is investigating a trading company where income does not match sales volume, suspecting staff theft. Investigations revealed inventory amounts on January 1 and December 31 of 2013, average gross profit rate, accounts receivable balances, purchase invoices, customer receipts, and merchandise disbur

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Cindy Craus
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101 views4 pages

Quiz 5 Inventory

An auditor is investigating a trading company where income does not match sales volume, suspecting staff theft. Investigations revealed inventory amounts on January 1 and December 31 of 2013, average gross profit rate, accounts receivable balances, purchase invoices, customer receipts, and merchandise disbur

Uploaded by

Cindy Craus
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem A

The UDI Company is a wholesale distributor of Rice Mill replacement parts. Initial amounts
taken from UDI’s accounting records are as follows:

Inventory at December 31, 2013 (based on physical count in


UDI’s warehouse on December 31, 2013) P400,000

Accounts payable at December 31, 2013:


Vendor Terms Amount
IRA Co. Net 30 P 9,000
MOR Co. Net 30 36,500
LEB Co. Net 30 48,000
BON Co. Net 30 74,000
BRIT Co. Net 30 -0-
P167,500
=======
Sales in 2013 P 5,000,000

Additional information is as follows:

a. Parts held on consignment from IRA to UDI, the consignee, amounting to P9,000, were
included in the physical count of goods in UDI’s warehouse on December 31, 2013, and in
accounts payable at December 31, 2013.

b. P15,000 of parts which were purchased from BON and paid for in December 2013 were sold
in the last week of 2013 and appropriately recorded as sales of P21,000. The parts were included
in the physical count of goods in UDI’s warehouse on December 31, 2013, because the parts
were still in the premises, pending shipping instructions from the customer.

c. Parts in transit on December 31, 2013, to customers, shipped FOB destination, on December
28, 2013, amounted to P11,000. The customers received the parts on January 6, 2014. Sales of
P15,000 to the customers for the parts were recorded by UDI on January 2, 2014.

d. Retailer were holding P50,000, at cost, of goods on consignment from UDI, at their stores on
December 31, 2013.

e. Goods were in transit from BRIT to UDI on December 31, 2013. The cost was P8,000, and
they were shipped FOB shipping point on December 29, 2013.

Required: Compute the adjusted balances of Inventory, Accounts Payable, and Sales.

Inventory _____________ AP ______________ Sales _______________


Problem B

The owner of a trading company engaged your services as auditor. There is a discrepancy
between the company’s income and the sales volume. The owner suspects that the staff is
committing theft. You are to determine whether or not this is true. Your investigations revealed
the following:

a. Physical inventory, taken December 31, 2013 under your observation, showed that cost was
P26,500 and market value, P25,000. The inventory of January 1, 2013 showed cost of P39,000
and market value of P37,500. It is the firm’s practice to value inventory at “lower of cost or
market”. Any loss between cost and market value is included in “Other Expenses.”

b. The average gross profit rate was 40% of net sales.

c. The accounts receivable as of January 1, 2013 were P13,500. Accounts receivable written off
during the year amounted to P1,000. Accounts receivable as of December 31, 2013 were
P37,500.
d. Outstanding purchase invoices amounted to P50,000 at the end of 2013. At the beginning of
2013 they were P37,500.

e. Receipts from customers during 2013 amounted to P300,000.

f. Disbursements to merchandise creditors amounted to P200,000.

Required: Compute the following:


1. Total sales for 2013 _______________
2. Total purchases for 2013 _______________
3. Amount of inventory overage or (shortage) ________________
Problem 3

SMB Inc., began operations on January 1, 2012. The following data pertain to the company’s
first two years in business:
Reported Amount Correct Amount
Inventory
Dec. 31, 2012 P 20,000 P 40,000
Dec. 31, 2013 35,000 35,000
Net Income
For 2012 60,000 ?
For 2013 66,000 ?
Retained Earnings
Dec. 31, 2012 60,000 ?
Dec. 31, 2013 126,000 ?

During 2012 and 2013 the company’s income tax expense rate was 40%, and the company
declared no dividends.

Required: Compute the correct amount for each of the following items:

1. Net income for 2012 ________________


2. Net income for 2013 ________________
3. Retained earnings, Dec. 31, 2013 ________________
Problem D

During the annual audit of Gerry Co., the following information were obtained:

Balances – December 31
Inventory, January 1, per general ledger P 5,000
Purchases, per general ledger 28,000
Inventory, December 31, per inventory summary 5,000

The January 1 and December 31 inventories appearing above were determined by physical count
of the goods on hand on those dates, and no reconciling items were considered. All purchases
are FOB shipping point.

In the course of your examination of the inventory cut-off, both at the beginning and end of the
year, you discover the following facts:

Beginning of the year:


a. Invoice totaling P550 were entered in the voucher register in January, but the goods were
received during December.
b. December invoices totaling P830 were entered in the voucher register in December, but goods
were not received until January.

End of the year:


c. Invoices totaling P660 were entered in the voucher register in January, but goods were
received in December.
d. December invoices totaling P410 were entered in the voucher register in December, but the
goods were not received until January.
e. Invoices totaling P1,500 were entered in the voucher register in January, and the goods were
received in January, but the invoices were dated December.

Required: As of December 31, how much is:


1. The adjusted balance of the January 1 inventory? ______________
2. The adjusted balance of the purchase account? ______________
3. The corrected December 31 inventory? ________________

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